Policy Solutions for High Cost Areas in Today’s Market
by Rick Hoover
Relocating into Higher Cost Locations
The corporate necessity to place people in positions and locations where they are most needed has not diminished, and at times this requires transferring employees from lower cost-of-living areas to higher cost areas. In the past, employees were more willing to live with higher costs in exchange for the opportunities and benefits that came with their new position. However, over time, employee expectations have shifted. Now, companies that need to relocate talent into higher-cost locations find they must provide additional assistance to attract and incentivize employees to move.
What is a Mortgage Payment Differential Program?
A mortgage payment differential program (MPD) is designed to provide employees moving to a higher cost area with mortgage payment assistance. Unlike other temporary interest rate buy-down programs, the MPD is not tied to the interest rate on the loan. Instead, MPD uses a pre-determined amount of money to help transferees purchase a home in the new location by directly supplementing the mortgage payments for a specified period.
Companies establish a pre-determined benefit amount to offer the employee over a specified time. The lender will then provide a stream of monthly payments directly to the employee until the benefit is exhausted. Since the employee is receiving this monthly assistance to apply to their mortgage payment, they are effectively eased into the higher-cost area. After the benefit has expired, the employee will then be responsible for making the full mortgage payment each month.
Advantages of a MPD:
- Greater program design flexibility – a company can choose the length and amount of benefit. The typical term of assistance is a minimum of three years and can be applied for up to eight years if necessary.
- Greater purchasing power - If the benefit will be provided for a minimum of three years, the MPD can be considered as qualifying income.
- Greater employee flexibility – Since the benefit is applied outside of the loan, there are no rate, program, or loan product restrictions. A MPD can be applied to conforming, FHA, VA, & jumbo loan programs.
Like other high cost mortgage programs, the lender will manage and administer the program and direct bill the company for the cost on an annual basis through the benefit’s duration. The tax treatment on a mortgage payment differential program is also similar to other mortgage high cost programs. The amount of benefit paid out in each year will be reported and taxed as W-2 income on each paycheck. However, the total amount of mortgage interest paid for the calendar year would be eligible for a tax deduction as mortgage interest on Schedule A. Like other high cost mortgage programs, it can be cancelled at any time and unused funds returned to the company.
The right policy changes will help assure that transferees receive consistent and fair high-cost-area assistance. As always, SIRVA is committed to providing you with the most up-to-date information so you can make informed decisions and meet your mobility objectives.